Staff and Barnwell’s Chief Operating Offi

[Pages:5]Barnwell's investments in oil and natural gas properties consist of investments in Canada, principally in the Province of Alberta, with minor holdings in the Provinces of Saskatchewan and British Columbia. These property interests are principally held under governmental leases or licenses. Under the typical Canadian provincial governmental lease, Barnwell must perform exploratory operations and comply with certain other conditions. Lease terms vary with each province, but, in general, the terms grant Barnwell the right to remove oil, natural gas and related substances subject to payment of specified royalties on production.

All exploratory and developmental operations are overseen by Barnwell's Calgary, Alberta staff and Barnwell's Chief Operating Officer located in Honolulu, along with senior management and independent consultants as necessary. In fiscal 2009, Barnwell participated in exploratory and developmental operations primarily in the Canadian Province of Alberta, although Barnwell does not limit its consideration of exploratory and developmental operations to this area.

The Province of Alberta charges oil and natural gas producers a royalty for production in Alberta. The Province of Alberta determines its royalty share of natural gas and oil by using reference prices that average all natural gas sales and oil sales, respectively, in Alberta. Through December 31, 2008, royalty rates were calculated on a sliding scale basis, increasing as prices increase up to a maximum royalty rate of 35%. Barnwell also pays gross overriding royalties and leasehold royalties on a portion of its natural gas and oil sales to parties other than the Province of Alberta.

In October 2007, the Alberta Government announced a New Royalty Framework ("NRF") that took effect on January 1, 2009. The NRF changes royalty rates on conventional oil and natural gas production to be both price-sensitive and production-sensitive, and may increase up to a maximum royalty rate of 50%. The price-sensitive maximum is reached for oil when oil is selling at or above $120.00 Canadian dollars per barrel and for natural gas when natural gas is selling at or above $17.50 Canadian dollars per MCF. Approximately 96% of Barnwell's gross revenues are derived from properties located within Alberta. Approximately 74% of all fiscal 2009 royalties related to crown charges, and 26% of Barnwell's fiscal 2009 royalties related to freehold and override charges which are not directly affected by the NRF.

In November 2008, the Alberta Government announced a one-time option of selecting new transitional rates or NRF rates when drilling a new natural gas or conventional oil well 1,000 to 3,500 meters in depth. All wells drilled between January 1, 2009 and December 31, 2013 that adopt the transitional rates will be shifted to the NRF on January 1, 2014. As of January 1, 2009, all of Barnwell's wells in Alberta pay royalties under the NRF and all new commercial wells adopted the transitional royalty rates.

In fiscal 2009 and 2008, the weighted-average royalty rate paid on all of Barnwell's natural gas was approximately 16% and 23%, respectively. The weighted-average rate of all royalties paid to governments and others on natural gas from the Dunvegan Unit, Barnwell's principal oil and natural gas property, was approximately 18% and 25% in fiscal 2009 and 2008, respectively. The decrease in

royalty rate on all properties and the Dunvegan Unit were primarily due to the lower royalties paid under the NRF due to significantly lower prices.

In fiscal 2009 and 2008, the weighted-average royalty rate paid on oil was approximately 20% and 21%, respectively.

Natural gas prices are typically higher in the winter than at other times due to increased heating demand. Oil prices are also subject to seasonal fluctuations, but to a lesser degree. Oil and natural gas unit sales are based on the quantity produced from the properties by the operator. During periods of low demand for natural gas, the operator of the Dunvegan property may re-inject natural gas into underground storage facilities in the Dunvegan property for delivery at a future date.

The following table sets forth Barnwell's oil and natural gas reserves at September 30, 2009, by property name, based on information prepared by Paddock Lindstrom & Associates Ltd. Gross reserves are before the deduction of royalties; net reserves are after the deduction of royalties. This table is based on constant dollars where reserve estimates are based on sales prices, costs and statutory tax rates in existence at September 30, 2009, the date of the projection. Oil, which includes natural gas liquids, is shown in thousands of barrels ("MBBLS") and natural gas is shown in millions of cubic feet ("MMCF").

OIL AND NATURAL GAS RESERVES AT SEPTEMBER 30, 2009

Property Name Dunvegan Red Earth Bonanza/Balsam Pouce Coupe South Medicine River Doris Faith South Wood River Progress Pouce Coupe Boundary Lake, Alberta Boundary Lake,

British Columbia Other properties

TOTAL

Total Proved Producing

Oil & NGL

Gas

Gross Net Gross Net

(MBBLS)

(MMCF)

479 333 11,615 10,601

275 228

9

8

117

84

575

515

3

2

509

445

26

20

357

311

-

-

265

246

-

-

-

-

62

47

117

105

111

88 1,648 1,469

4

3

452

417

60

47

541

475

Total Proved

Oil & NGL

Gas

Gross Net Gross Net

(MBBLS)

(MMCF)

479 333 11,615 10,601

275 228

9

8

117

84

575

515

57

44

574

505

26

20

357

311

-

-

296

276

-

-

778

741

62

47

326

281

185 145 2,830 2,493

4

3

452

417

116

86 1,104

938

55 309

1,501

49 274

1,175

76 2,682

18,846

65 2,375

17,032

65 324

1,710

57 287

1,334

286 3,669

22,871

235 3,289

20,610

Reserves

The amounts set forth in the following table, prepared by Paddock Lindstrom & Associates Ltd., Barnwell's independent petroleum consultants, summarize the estimated net quantities of proved developed producing reserves and proved developed reserves of oil (including natural gas liquids) and natural gas as of September 30, 2009, 2008 and 2007 on all properties in which Barnwell has an

interest; all reserves are developed. These reserves are before deductions for indebtedness secured by the properties and are based on constant dollars. No estimates of total proved net oil or natural gas reserves have been filed with or included in reports to any federal authority or agency, other than the United States Securities and Exchange Commission, since October 1, 2008.

Proved Developed Producing Reserves

Oil (including natural gas liquids) ? barrels (BBLS): Dunvegan All other properties Total

Natural gas ? thousand cubic feet (MCF): Dunvegan All other properties Total

2009

333,000 842,000 1,175,000

10,601,000 6,431,000 17,032,000

September 30, 2008

329,000 763,000 1,092,000

2007

387,000 708,000 1,095,000

10,493,000 8,321,000

18,814,000

11,577,000 7,281,000

18,858,000

Total Proved Developed Reserves (Includes Proved Developed Producing Reserves)

September 30,

2009

2008

Oil (including natural gas liquids) ? barrels (BBLS):

Dunvegan

333,000

337,000

All other properties

1,001,000

998,000

Total

1,334,000

1,335,000

Natural gas ? thousand cubic feet (MCF): Dunvegan All other properties

Total

10,601,000 10,009,000

20,610,000

10,697,000 12,600,000

23,297,000

2007

387,000 1,000,000 1,387,000

11,577,000 12,441,000 24,018,000

Estimated Future Net Revenues

The following table sets forth Barnwell's "Estimated Future Net Revenues" from total proved oil, natural gas and natural gas liquids reserves and the present value of Barnwell's "Estimated Future Net Revenues" (discounted at 10%). Estimated future net revenues for total proved reserves are net of estimated future expenditures of developing and producing the proved reserves, and assume the continuation of existing economic conditions. Net revenues have been calculated using year-end sales prices and current costs, after deducting all royalties, operating costs, future estimated capital expenditures, and income taxes.

Year ending September 30, 2010 2011 2012 Thereafter

Present value (discounted at 10%) at September 30, 2009

Proved Producing Reserves

$ 13,484,000 10,527,000 8,295,000 25,913,000

$ 58,219,000

$ 42,491,000*

Total Proved Reserves

$ 14,272,000 12,026,000 9,148,000 33,393,000

$ 68,839,000

$ 50,241,000*

* These amounts do not purport to represent, nor should they be interpreted as, the fair value of Barnwell's natural gas and oil reserves. An estimate of fair value would also consider, among other items, the value of Barnwell's undeveloped land position, the recovery of reserves not presently classified as proved, anticipated future changes in oil and natural gas prices (these amounts were based on a natural gas price of $3.43 per 1,000 cubic feet and an oil price of $65.57 per barrel as of September 30, 2009) and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates.

Oil and Natural Gas Production

The following table summarizes (a) Barnwell's net unit production for the last three fiscal years, based on sales of natural gas, oil and natural gas liquids, from all wells in which Barnwell has or had an interest, and (b) the average sales prices and average production and depletion costs for such production during the same periods. Production amounts reported are net of royalties and the Alberta Royalty Tax Credit, where applicable. The Alberta Royalty Tax Credit was discontinued effective January 1, 2007. Barnwell's net production in fiscal 2009, 2008 and 2007 was derived primarily from the Province of Alberta.

Annual net production: Natural gas liquids (BBLS)* Oil (BBLS)* Natural gas (MCF)*

Annual average sale price per unit of production: BBL of natural gas liquids** BBL of oil** MCF of natural gas***

Annual average production cost per MCFE produced****

Annual average depletion cost per MCFE produced*****

2009

Year ended September 30, 2008

2007

98,000 170,000 3,567,000

107,000 160,000 3,349,000

114,000 146,000 3,615,000

$ 24.47 $ 48.94 $ 3.79

$ 61.02 $ 100.15 $ 7.77

$ 37.36 $ 56.96 $ 5.88

$ 1.78

$ 1.97

$ 1.83

$ 2.15

$ 2.89

$ 2.49

*

** *** ****

*****

When used in this report, the term "BBL(S)" means stock tank barrel(s) of oil equivalent to 42 U.S. gallons and the term "MCF" means 1,000 cubic feet of natural gas at 14.65 pounds per square inch absolute and 60 degrees F. Calculated on revenues before royalty expense and ARTC divided by gross production. Calculated on revenues net of pipeline charges before royalty expense and ARTC divided by gross production. Natural gas liquids, oil and natural gas units were combined by converting barrels of natural gas liquids and oil to an MCF equivalent ("MCFE") on the basis of 1 BBL = 5.8 MCF. Excludes natural gas pipeline charges. Natural gas liquids, oil and natural gas units were combined by converting barrels of natural gas liquids and oil to an MCF equivalent ("MCFE") on the basis of 1 BBL = 5.8 MCF.

Barnwell of Canada, Limited

Suite 900, 639 5th Avenue S.W.

Calgary, Alberta, Canada T2P 0M9

Phone (403) 531-1560

Fax

(403) 266-4124

Morton H. Kinzler Warren D. Steckley, PE Alexander C. Kinzler Russell M. Gifford

Paul Hurst Nancy M. Lee Adam Bzdziuch

Officers

Chief Executive Officer President and Chief Operating Officer Vice President, Secretary, Treasurer Vice President, Chief Financial Officer, Assistant Secretary Vice President and Exploration Manager Controller Vice President of Operations

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